Even the Rent for Warehouses Is Too Damn High Now

Rents in the Bay Area are rising so fast that the Oakland City Council voted last month to impose a 90-day moratorium on rent increases, an emergency ordinance intended to counter the city’s second straight year of double-digit rent growth. And yet that’s nothing compared with the surge in East Bay warehouse rents, which are up 30 percent this year, according to a new report from real estate group CBRE. On the outskirts of New York and Los Angeles, the trend is similar: Rents for big, modern warehouses are up 15 percent in New Jersey, 13.5 percent in the Inland Empire, and 10 percent in Los Angeles–Orange County.

One of the main drivers of this continues to be e-commerce, contributing to the growth and expansion of global and emerging hubs. E-commerce sales in the U.S. are expected to grow to more than $400 billion in the next several years, with Forrester Research estimating $414 billion in sales in 2018 and eMarketer estimating an average growth of 15% from 2016.

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Amazon, for example, has been opening distribution centers closer to big cities and has developed a network of “sortation” centers to make rapid delivery possible. In December 2014, the company opened its first urban “Prime Now” warehouse on the fifth floor of a Manhattan office building, which allows the company to make two-hour deliveries.

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It’s part of a much larger shift, says David Egan, the head of industrial research for the Americas at CBRE. “Everyone talks about the big e-com providers,” he explains, “but they don’t talk about what they’ve done to train us as consumers.” Ten years ago, consumers and stores were happy to wait a few days to get what they needed. Now, the expectations of online shopping have infiltrated traditional retailers like Walmart, Home Depot, and Target. At all levels of the supply chain after manufacturing, there’s pressure to be closer to consumers. Call it the demand chain.

Don’t expect this need for storage spaces to undo the conversion of warehouses into galleries and concert halls and co-working space; offices in Chicago’s West Loop or Atlanta’s Midtown are still about 10 times more expensive, per square foot, than warehouses in those cities. But promises of quick delivery are putting pressure on rents for prime warehouses, which are up 10 percent in the U.S. this year, even as warehouse construction booms.

Top Comment

I would imagine all those K Mart, Sears, and other old school department stores that are closing could be converted to warehouses. More...

Barring some radical innovation in transportation, e-commerce companies that want their goods within an hour or two of consumers need more physical space near population centers. In order to do so, they’re starting to take on some of the same costs as brick-and-mortar retailers, like sales tax, competitive rents, and an expanded labor force.

For years, traditional shops have tried to imitate digital competitors, establishing their presence on the web. Now, it’s e-commerce companies who are carving out a place in and around the city.